Egypt - Current Status of the Framework for Non-Resident Digital Service Providers

In 2023, the Egypt Ministry of Finance (MoF) amended the Value Added Tax Law (VAT Law) to simplify the registration of nonresidents, special economic zone projects, the VAT treatment of equipment and machinery, the schedule of tax items and exemption lists, etc. Additionally, the Egyptian government published Executive Regulations elaborating on the amended provisions.

The Decree issued by the Ministry of Finance introduced straightforward guidelines for foreign providers of digital and remote services to Egyptian customers. 

Development of Tax Framework for Digital Services

The indicated guidelines apply to foreign online vendors and digital platforms providing digital and remote services to customers based in Egypt. Foreign digital service providers that provide digital and remote services to customers in Egypt should collect VAT.

These guidelines define remote services as any service where there is no necessary connection between the recipient and the existence of the physical location, as the necessary requirement for related provision. These services include various supplies such as digital content (e-books, movies, and shows), professional services (legal, accounting, or consultancy), and online supplies of games, apps, and software.

The VAT obligations of the vendors differ depending on the customer, whether VAT-registered (B2B transactions) or non-VAT-registered (B2C transactions). For B2B transactions, the reverse-charge mechanism applies, where the resident businesses must report and pay VAT, whereas nonresident vendors are exempt from this obligation. 

On the other hand, for B2C transactions, two different rules may apply depending on how the services are provided:

1. Services are provided by the nonresident through their portal or a mobile application; 

2. Services are provided by the nonresident through a nonresident EDP.

In the first case, the service providers must register and remit VAT through a simplified registration regime. In contrast, in the second case, the EDP must register and remit VAT through a simplified registration regime.

Once businesses exceed a turnover threshold of EGP 500,000 in 12 months, they should register under a simplified registration regime by creating an account on the ETA website. This threshold isn’t applicable for providers of professional and consultancy services subject to the reduced VAT rates, they have an obligation to register prior to the commencement of their activity.  

Conclusion

Nonresident digital service providers should comply with the procedure stated in the guidelines issued by the MoF and understand the requirements regarding invoicing, record keeping, and VAT return filing. Failing to comply with these requirements may lead to Egypt Tax Authorities (ETA) registering nonresident service providers for Egyptian VAT online on their behalf and sending them an assessment of their liability based on ETA calculation with additional penalties or registering the debt in a court in the country of the nonresident supplier.

Source: Egyptian Tax Authority